Utah: Sales Made Via a Referral Model are Not Marketplace Sales

In Private Letter Ruling 19-004, the Utah Tax Commission concluded that a taxpayer was not a “marketplace facilitator” for sales occurring through its referral business. The taxpayer, an online marketplace, facilitated third-party sales and sold internet-based advertising for third-party merchants’ goods and services. If a customer clicked on a merchant’s advertisement on the taxpayer’s website, the customer would be sent to the merchant’s website where it could purchase the merchant’s goods or services. The merchants paid the taxpayer based on either the number of clicks or the number of views the advertisement received. This model is known as the “referral” business model. In Utah, a marketplace facilitator is required to collect and remit tax if it exceeds certain economic nexus thresholds. A “marketplace facilitator” is “a person … that enters into a contract, an agreement, or otherwise with sellers, for consideration, to facilitate the sale of a seller’s product through a marketplace that the person owns, operates, or controls and that directly or indirectly” engages in certain enumerated activities.  The Commission concluded that the taxpayer was not a marketplace facilitator under Utah law for sales occurring through the referral model. Based on the definition of marketplace facilitator, the Commission determined that although the taxpayer was entering “into a contract … with sellers, for consideration, to facilitate the sale of a seller’s products,” the sales were not occurring on a marketplace “own[ed], operate[d], or control[led]” by the taxpayer. In the Commission’s view, the sales was taking place on the third-party merchants’ website. Thus, the taxpayer did not fit within the definition of a marketplace facilitator, and did not have a collection and remittance obligation for such sales. Please stay tuned to TWIST for additional marketplace updates.